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Friday, January 28, 2011

The Mystery of Calculating Executor's Fees in Pennsylvania

The issue of calculating fees for an executor, executrix, administrator or personal representative in Pennsylvania estate cases is interesting because there is in fact no hard and fast rule about how such fees are to be calculated. Therefore no sure way to know what you can expect to see in the accounting if you are a beneficiary.

While executors’ fees are set by statute in many states, the “PEF” Code (the Pennsylvania Probate, Estates and Fiduciaries Code) provides only that a personal representative’s compensation shall be “reasonable and just” – based upon the specifics of each estate - and that it “may” be calculated on a graduated percentage. (20 Pa.C.S. §3537) The executor then has several options available, including charging (i) a flat fee or (ii) an hourly fee.

Though a "reasonable and just" standard may appear to be a very loose, wishy-washy standard, anyone acting as an executor or administrator should be aware that the executor’s commission will ultimately be subject to review on many levels: first and foremost, by the Orphan’s Court, to determine the reasonableness of the fee based upon the size of the estate, particularly if a beneficiary has objected to the accounting; second, by the Attorney General’s office, to review the fees’ effect upon the pay out of a charitable gift if a charity is a beneficiary of the estate; and third, by the Department of Revenue, to ensure against fraudulent deductions for fees claimed on the Inheritance Tax Return.

To guard against the prospect of an unfavorable audit, the Pennsylvania personal representative should take careful note of the percentage guidelines established by the court in Johnson Estate, 4 Fid.Rep.2d 6,8 (1983). In actuality, although the schedule established in Johnson was only included as an attachment to the judge’s written opinion, it has served as the unofficial guideline for gauging executor commissions and attorney fees ever since, with countless other judges adopting it as their own benchmark for review of accountings in subsequent cases.

Typically, if the ultimate commission is not more than what is provided on the Johnson schedule (below), and is calculated based upon standards of financial reason and fairness, it is likely that it will likely be met with approval all around.

EXECUTOR COMMISSIONS







Per Col.

Per Total


$

00.01

to

100,000.00

5%

5,000.00

5,000.00


$

100,000.01

to

200,000.00

4%

4,000.00

9,000.00

Executor or

$

200,000.01

to

1,000,000.00

3%

24,000.00

33,000.00

Administrator

$

1,000,000.01

to

2,000,000.00

2%

20,000.00

53,000.00


$

2,000,000.01

to

3,000,000.00

1½%

15,000.00

68,000.00


$

3,000,000.01

to

4,000,000.00

1%

10,000.00

78,000.00


$

4,000,000.01

to

5,000,000.00

½%

5,000.00

83,000.00

1%

Joint Accounts

1%

P.O.D. Bonds

1%

Trust Funds

3%

Real Estate Converted
with Aid of Broker

5%

Real Estate:
Non-Converted

1%

Real Estate:
Specific Devise

Reasonableness, however, always reigns: While the percentage method appeals to judges of the Orphans' Court, keep in mind the Pennsylvania Superior Court has criticized the practice in their own opinions in Sonovick Estate, 373 Pa. Super 396 (1988), and Preston Estate, 560 A.2d 160 (1989).

An Executor should also consider that money received as compensation for any fiduciary duties is taxable for federal income tax purposes and usually for state income tax purposes as well. Accordingly, the executor may want to elect NOT take a commission after all as he or she may receive more by just receiving his or her distributive share of the estate.

For purposes of this article, I have used the titles "executor", "executrix", "administrator" or "personal representative" interchangeably. All refer to the person or entity that is in charge of administering a decedent's estate. In fact, an executor or executrix is a party that is appointed by a Will; an administrator is a party that is not appointed by Will, but is approved by the Court; and a personal representative can be either a party named in a Will or appointed by the Court.

NOTE: Special thanks to Elizabeth Carter for helping to prepare this article.

54 comments:

Michael Feigin, NJ NY PA Patent Attorney said...

You'd think that would be published in a simple table somewhere on the state's website. I guess that's what blogs are for.

zangtum! said...

What what is a reasonable fee if the estate in question is in PA but the executrices are in NY & OR?

Kevin A. Pollock, J.D., LL.M. said...

Zangtum!,

There are really two fees at issue here. The first is compensation for acting as Executor, Personal Representative, Trustee or Administrator. That fee will be the same regardless of where the person is located.

The second fee is reimbursement for expenses. Again - it is a matter of what is reasonable. However, it is certainly reasonable for an out of state executor to have more travel related costs that need to be reimbursed.

Hopefully that helps.

PaBirds said...

What do Per Col. and Per Total mean?

Kevin A. Pollock, J.D., LL.M. said...

Dear PaBirds,

It's a bit difficult to tell from this post, but what the first column reflects is the commission for that price range. The second column reflects the commission for that price range plus all previous price ranges.

For example if you have an estate worth $1,750,000, rather than calculating the commission for each price range, you simple look at the Per Total commission for the $200,000 - $1,000,000 commission range and that gives you a Commission of $33,750 (because that is the commission on $1,000,000). Then the amount over $1,000,000 (or $750,000) is entitled to a commission at 2%, for an additional $15,000 commission - giving you a total commission of $48,750. Hope that helps.

Tbone said...

let's say there are 3 executors - do they SPLIT the $48,750 or EACH get it? if the estate is complex and takes 3 years of work, do executors get it for EACH year?

Kevin A. Pollock, J.D., LL.M. said...

TBone,

A reasonable fee presumes that they split the commission. They do not each get that amount. However, in many cases, you get a little bit more than a split. Also, the longer the administration, the more a larger fee is likely to be reasonable (assuming they have been doing work that entire time). Remember, the chart above is a guideline, not a set amount.

awall said...

On what amount is the Executor fees calculated? The gross amount of the Estate or some other figure?

Tierney said...

Mr. Pollock: What should I do if the one attending the probate of my mother's will is her CPA of 28 years, and is intending to claim the Johnson formula against her estate, PLUS outrageous CPA charges as well? Isn't that "double dipping". Also, wouldn't you say there was a conflict of interest here, when her CPA fails to advise her of ways to avoid probate, when he is named executor and now intends to make this big commission from her estate?

Kevin A. Pollock, J.D., LL.M. said...

Awall,

Generally, in PA, the executor fees are not calculated on the Gross amount of the estate, but on what is reasonable. One of that factors that is looked at, however, is the Gross size of the estate. This can be a major issue when there is a lot of property that is heavily mortgaged.

I know this can be a confusing answer, so I can tell you that it is somewhat common to use the table above as a guideline (using the gross estate numbers). However, you should also keep track of the time you spend on estate (about $20/hour).

If the time is substantially disproportionate to the Table in the Johnson case, you better adjust your commission.

Kevin A. Pollock, J.D., LL.M. said...

Tierney,

If you think the fees are unreasonable, you should consult an attorney. It is not double dipping if the accounant is doing two jobs.

As for the CPA not telling your mom how to avoid probate, that is not the job of the CPA - that is the job of an attorney. You will need to find out what advice the attorney gave your mother to find out if there was any malpractice

You also need to remember, many clients do not wish to avoid probate. There is more oversite in the probate process.

Anonymous said...

In a situation where the executor is also a benficiary of an estate valued at approx $700,000. She is an attorney as well but not the estate attorney. The executor hired her fiance to do work such as mowing and raking and also hired others to do the same tasks. The fiance recvd $25 per hour while every9oneelse received $10 for the same work. She is also charging $100 per hour executor fees for doing things like taking out garbage and picking up mail which seems excessive. She has also taken attorneys fees of $225 per hour to do things that would not normally require an attorney such as closing bank accounts, mailings,reading emails, looking up addresses, time records for workers at a cost of $225 per hour to the estate. Tasks that really do not require the expertise of an attorney who was never named as such in the will. She has billed for $45,000 in executor fees and $24,000 in attorneys fees plus $4,000 to fiance at a rate that is 2.5 time higher than what she paid others. These seem very excessive, are they? How would a beneficiary go about contesting these fees? Thank you

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 5/9,

I am not sure at what stage of the process you are at, but you should consult an attorney immediately as you only have a limited amount of time to respond to an accounting before you lose your rights to object.

There are several different ways to object to an accounting, ranging from a letter demanding that they reduce their commission to filing a suit for a full blown audit.

Please let us know if you need assistance.

Anonymous said...

my wife & I are cleaning out a relatives home. As executor what is a fair rate to pay her for her work. She is sorting all paperwork to make sure no important papers are lost, & hauling to a dumpster. The relative was a hoarder & the job is daunting. We don't want anyone else to see the condition of the house as it was. I want to be fair with her for her efforts. I am executor & not a beneficiary. The estate goes to charities.

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 5/12,

As always, reasonableness can vary depending upon the size of the estate (wealth) and the size of the mess. Other factors include whether your wife is taking time off of work to deal with this.

If most of the stuff is relatively unimportant, and you could pay someone $10-15/hour to do the work, that should be factored in.

I personally counsel people not to be penny wise and pound foolish. In other words, pay a fair rate to have it done quickly and well rather than incur costs later for having to redo it. You also should delegate what you can otherwise it could wind up costing an extra few months of mortgage payments and real estate taxes.

So, keep track of the time involved, multiply it by what you think is a fair hourly rate and see if it is line with the size of the estate. If it seems excessive, you should consider reducing the rate. Remember, whatever you pay your wife is taxable income that must be reported.

Anonymous said...

Where the attorney's fees are based on a percentage of the value of the estate, would this calculation be done on the gross estate or only on the value of the assets that run through probate?

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of June 28,

Assets that pass outside the probate estate can be subject to a commission, but usually at a different rate. If you look at the bottom of the chart above, it shows most of the different rates.

catherine said...

Am I correct? Do you base an executors fee on all assets before liabilities are paid? Example a house sells for 260,000.00 we owe 110,00 for the morgage = 150,000 as the net asset. Does the executor charge his % on 260,000 or 150,000? Also does the lawyer do the same?

Kevin A. Pollock, J.D., LL.M. said...

Dear Catherine,

Most people I know calculate it based upon the gross estate, not the net. However, if the amount looks too high in comparison to the net estate (i.e. unreasonable), they will lower it. So, in your situation, if there is $150,000 net estate, a $7,000 commission might not be much. If the mortgage were $250,000 and only a $10,000 net estate, that same commission might be unreasonable.

Anonymous said...

I am not familiar with the term of "converted real estate". I would assume that the term means sold real estate. So if a broker is used, the fee is 3%. If a broker is not used, the fee is 5% (although it only states "non-converted"??). And if it is a specifice devise, the fee is 1% (just a deed transfer). Anyone have any thoughts on this interpretation?

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 12/20/2012,

Generally, I believe you are correct that converted basically means sold. It can also refer to property that substituted for other assets or debts.

Anonymous said...

Hello: I am a new attorney and I accepted handling an estate. The personal representative is out of state and I am doing everything she would do. I am also doing everything that an attorney would do. The estate has a $75K home, $2000 worth of burial plots and a $25000, joint trust account that has to be challenged in court. I've done a number of things so far and will charge $200 per hour. Would that be too much? Second, what kind of petition would I have to file to challenge the joint trust account so it can be part of the estate?

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 2/1/13,

I'm sorry, but this really isn't the forum for giving out that kind of advise. If this is your first case, I strongly advise you work as co-counsel with an experienced attorney to get yourself up to speed.

Best of luck.

Anonymous said...

My deceased mother was a PA resident but owned a large house in MA. A MA lawyer will file the MA Estate taxes and a PA lawyer will file the Fed and PA Estate taxes. In calculating his commission, should the PA lawyer subtract out the value of the MA house before calculating his percentage fee using the Johnson rule?

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 2/25/13,

I'm sorry to hear about your mother.I am a bit puzzled, is the PA attorney also the executor? If so, he is entitled to an executor commission on the entire estate.

If not, the attorney should be charging a reasonable fee. It is not reasonable to charge for property outside of PA except to the extent he needs to coordinate distributions to beneficiaries and prepare the inheritance tax return (unless of course the executor spends a lot of time talking to the attorney about problems with the MA property...)

Anonymous said...

Follow-up to 2/25/13:
The lawyer and I are co-Executors. Below is what he told me, I never agreed to the stated arrangement. Roughly 50% of the assets are in MA.

"As we have agreed, my compensation as counsel to the Executors will be as a percentage of the estate’s assets (Johnson Estate), as will yours as Executor. (In consideration of the counsel fee as agreed, I will waive my share of the Executor commission to you.)"

Anonymous said...

My mom recently passed away and a family friend was asked to be the executor. The estate was recently settled, however, my siblings and I feel that we have been left in the dark regarding our mothers finances. Are we entitled to know our mothers finances as well as how much the executor paid the lawyer and the amount he paid himself for his executor fees. I believe my mothers estate was under $200k. Is there a percentage compensation that a lawyer or executor would get for the services. Thank you! Any information is greatly appreciated.

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of March 29,

I'm sorry to hear about your mother. As a beneficiary, you are entitled to an accounting which breaks down the assets on death, income and expenses. Typically you receive the accounting before they send you any money.

My advice is to ask for an informal accounting, and if they don't provide one, you might be forced to sue. You absolutely have a right to see the accounting though.

Best of luck.

Anonymous said...

I'm still not quite clear how to read the chart. What would be considered a reasonable fee for an estate with a gross value of $446,000?

HHI said...

The attorney handling my mom estate in Pa handled about $23,000(the amount in a bank account) and paid state estate tax for us. My sister and I handled the CD accounts and life insurance. There were no other assets.His fee (over $7,000) is being based upon the entire taxable estate even though he did not process any of these funds. Is this reasonable?

Kevin A. Pollock, J.D., LL.M. said...

HHI,

On such a small estate, an executor's commission of $7000 would indeed be high. However, as far as attorney's fees go on an hourly basis, it may or may not be high.

There is a lot of work that goes into an administration, including preparing the tax forms. If there is no explaination for the the time, then that is troublesome and should be looked into.

Anonymous said...

Have there been any recent changes to the "Johnson Schedule" regarding estates in Pennsylvania? An attorney told me that the contract I signed that contained a fee of 1% for NON-PROBATED assets was a "typo" and the courts have recently ruled that the charge for NON-PROBATED assets is now 3%.

Anonymous said...

Hello. I am an executrix and one of three heirs of my dad's estate. My brother has issues with the estate. I want to fly to consult with the Matriarch of the family. Can this be handled as an administrative fee?

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 4/30/13,

I looked around and asked a few other attorneys regarding the 3% on non-probate assets. I am unfamiliar with any changes. Can you please forward me the name of this attorney so I can clarify. I would like to know for my own benefit. Thank you.

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 5/3/13,

Expenses that are necessary for the administration of the estate can be paid by the estate. I question whether a flight would be considered a necessary expense when a call or email could do...

George Marcus said...

I discovered unclaimed assets held by the state of New Jersey for a relative who died in NJ in 1997. Although I now live in PA, I have been named substitute administrator CTA for her estate by the County Surrogate Court to distribute these new-found assets (about $4,000 in value). I am not asking for any fee or commission but I want to charge the estate the expense of my time for all of the administrative duties in making this distribution. I believe that a modest hourly fee for my time is $20 per hour. Does this sound reasonable?

Kevin A. Pollock, J.D., LL.M. said...

Dear George,

Please understand that you are in fact asking for a commission. Additionally, if your aunt was a NJ domiciliary, it is NJ law that controls, not Pennsylvania.

In NJ, you can take a 5% executor commission on the first $200,000. For $4000, this amounts to $200. You can also be reimbursed for your expenses. If you did not spend 10 hours on this matter, you do not have to take the full $200.

Hope that helps.

Lynn692 said...

My husband is inheriting 16% of his grandparents estate. The other 2 beneficiaries(42% each) are the executors. One of the executors wants to take a fee, but he thinks it should come from my husband's portion because he is not an executor. There will be a meeting with the attorney who has been assisting with some of the details. What can we expect to hear on how this fee should be assessed?

Kevin A. Pollock, J.D., LL.M. said...

Dear Lynn592,

If an executor takes a commission, it comes off the top before anyone gets their share. In essense, each of the executors will be paying 42% of the commission and your husband will be paying 16%.

Additionally, he would then have to report the commission as income. So, the benefit to taking a commission in which he is such a large beneficiary is relatively small if you run the numbers.

For example, let's assume that there is an estate of $1,200,000 and $200,000 worth of costs and expenses not including the commission. In this situation, the two executors whould each get $420,000 and your husband would get $160,000.

If the executor took a commission, it would be about $37,000. 42% of that is $15,540. So, each of the executors would receive an inheritance of $404,460 and your husband would receive $154,080. The one who took the commission would get the additional $37,000, but if he were in the 25% tax bracket, he would really only see $27,750 of that. In essense, he would only receive $432,210. If both executors took a commission, they would split the $37,000, they wouldn't each be entitled to it.

Anonymous said...

Do all assets have to be reported, i.e., jewelry, furniture and vehicles so they can be liquidated or can the heirs split them among themselves and not report them?

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 7/29/13,

All assets must be reported. Failure to do so can result in sactions that the executor will be personally liable for.

Anonymous said...

I am an executor of my sister's estate in PA. My sister's will does not specify the fee I will receive, but the size of her estate entitles me to 5%. I live in a neighboring state and therefore have amassed about $1300 in actual expenses. The lawyer has told me that I can either receive the 5% OR the actual expenses, but not both. This is not how I understand it. Is the lawyer giving me accurate information?

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous,

I am not actually positive about this. I am of the belief that you can be reimbursed for reasonable fees as well as collect a commission.

Think of it this way, the commission is payment for the work that you do. If you incur costs in the performance of your job, you should be reimbursed for that as well.

Moreover, Johnson is not a mandate, merely a guide. As long as the costs overall are reasonable, your commission plus reimbursements should be acceptable.

TH Brown said...

Dear Mr. Pollock, I am both the POA for all aspects of my Mom and her sole future executor. She lives in rural Northumberland County. I estimate the future estate size to be about $400,000 of which $175,000 is real estate. Recently, a sibling and future heir has begun removing china, silver, etc. valued in excess of $25,000 from the home. Mom suffers from advanced dementia and is powerless to stop the removal of her belongings. As Mom's POA, what are my options? Mom has requested the return of the items but is powerless as well as not competent to get results. The value of the items taken so far is a sizable chunk of the future estate value. What should I do? Call the PA SP?
Thanks, T Brown

Kevin A. Pollock, J.D., LL.M. said...

Dear TH Brown,

I'm sorry to hear about the difficult decision with which you are facing. One messy option is a lawsuit.

A better approach would be to send your sibling a letter (regular mail AND certified) with an inventory of each of the items your sibling has taken. Advise him that your mother has demanded their return. Further advise him that if they are not returned, the items will be treated as an advancement on his inheritance and he will get $1 for $1 less upon your mother's death.

This only has a small chance of working.

Unfortunately, if you really want the items back, you'll either need to sue or call the police - both of which will forever terminate your relationship with your sibling.

Best of luck.

Anonymous said...

My ex-husband's estate is being managed by his sister. Can you explain to me the process of auditing the expenses including the attorney's fees of $55,000 for an estate that is only worth $155,000? In addition, she wants an executrix commission of $20,000. Can I show up at court and ask the judge to audit the expenses?

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 1/13/14,

I think the attorney's fees and the executor commission are very excessive.

You don't just show up in court to contest this. You need to demand a full accounting if you don't have one and then demand they explain the reason they think they are entitled to the fees. If the reasons are unsatisfactory, you should hire an attorney to sue on your behalf.

Please contact my office if you feel you need assistance.

Anonymous said...

My brother and I are co-executors on our mother's estate and hired her long time accountant to fill out the inheritance tax forms. In my initial consult with the accountant I informed him we were taking the 5% fee (2.5% each).

The estate from a tax point of view was around $250K (included property willed to my sister and various IRAs with designated beneficiaries). ~$50K in her bank accounts were placed in the estate account.

So what should the fee be based on? The accountant put $12.5K in the tax filing as an expense to the estate based on the 5%.

Any help would be appreciated.

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 2/14/14,

The executor commission is probably a little bit high if some of the assets were IRAs with named beneficiaries. It's not appropriate for the executor to take a commission on that as the executor is not doing any work.

Moreover, you need to remember that you must pay income tax on the commission. So you are most likely converting a 4.5% inheritance tax into ordinary income that will be taxed at a much higher rate. Unless you and your sister are not paying income taxes, you should reconsider taking the commission.

Anonymous said...

Thanks for your reply.

Actually the IRAs were the most work since I also had 2 brothers pass away within the last 5 years and getting death certificates etc (and dealing with some of the... ah... most incompetent people on the planet).

So since the taxes have already been filed, and we now reduce our fee, I am thinking that we will also need to file an inheritance tax addendum.

Lou

Kevin A. Pollock, J.D., LL.M. said...

Dear Anonymous of 2/14/14,

While the IRAs may have been the most work, technically the work was not done in your capacity as an executor of your mom's estate unless your mom's estate was the beneficiary of the IRA. Nevertheless, I can sympathize with the amount of work you would have to do to get paid and I'm sorry for your extensive losses.

With respect to filing an amended return, you have to do a cost-benefit analysis. (Extra cost of doing the amended return plus penalties and interest if any, vs. doing nothing.) Because the commission is a reasonable amount, and not purely statutory, the PA government might not object.

Best of luck.

Probate Law said...

Great post! Been reading a lot about probate law. Thanks for the info here!

R.H. said...

My mother died in 2007, and my father died in Sept. of 2013. Both died without a will. In the process of assisting my sister in filing life insurance claims for my father, I discovered that my mother's estate was never handled.

As such, I have now been appointed as administrator for both estates. Each estate is less than $50K.

In determining a reasonable fee for administering my mother's estate, would I use the gross value of the estate in 2007, or the value today?

Kevin A. Pollock, J.D., LL.M. said...

Dear R.H.,

I'm sorry to hear about the loss of your parents. You are only allowed to take an executor's commission based upon the amount that comes into your hands.

So if you were appointed today, you can only use that value. So this means if life insurance is payable to a beneficiary, you can't use that in calculating the executor's fee.